Like medical care, assisted living, in-home help and other forms of long-term care could become increasingly difficult for retiring baby boomers to afford. A recent study by Genworth USA revealed that the annual cost increases of most long-term services are far outpacing inflation: 2.32 percent for home health aides, 4.55 percent for assisted living facilities and 3.30 percent for nursing home rooms from 2012 to 2013. While most Boomers won’t need to consider such services for a decade or more, these trends may eventually make long-term care far less affordable than it has been for generations past.
Long-term services are becoming more costly because they require many of the same skills and professionals as hospital-based care. “I think it tends to follow general medical inflation trends, depending on the type of professional utilized, the locations and the overall requirements,” said Larry Moskat, managing member of Retirement Income and Inheritance Advisors. “I do think long-term care costs will continue to go up and generally track the care industry and medical industry type of numbers.”
Low interest rates and a still-shaky economy are making it even tougher for boomers to effectively plan for long-term care. “There’s no doubt that the increases in costs are outstripping the kind of return you’ll normally see in a retirement portfolio,” said Brad Mueller, director of risk management at Hewins Financial Advisors. Even if the growth of long-term care costs slows down, meager portfolios and overreliance on Social Security will make it more difficult for retirees to plan for old age.
Aside from rapidly rising costs, boomers’ differences from prior generations may impact their long-term care prospects, as well. They’re living longer, physically healthier lives than their parents and grandparents, yet they’re still subject to mental impairments that necessitate years or even decades of assistive services. “The longevity statistics should be unsettling for retirees,” said Mueller. “People should be planning around life expectancies of 95 or even 100.” Unfortunately, most boomers are not looking that far ahead.
Spending habits have also changed, and not for the better. “I’m observing that our baby boomer clients are spending as much in retirement as they did before retirement,” said Mueller. “I just see more spending on lifestyle than in the past, and my concern is that doesn’t leave much left over for long-term care needs.” Ironically, boomers who are enjoying long-lasting health and vitality as seniors might actually need to downgrade their lifestyles in preparation for lengthy retirements.